Revision as of 00:22, 27 February 2009

Lazy portfolios are designed to perform well in most market conditions. Most contain a small number of low-cost funds that are easy to rebalance. They are "lazy" in that the investor can maintain the same asset allocation for an extended period of time, as they generally contain 30-40% bonds, suitable for most pre-retirement investors.

Three Fund Lazy Portfolios

There are a number of popular authors and columnists who have suggested 3 fund lazy portfolios. These typically consist of three equal parts of bonds (total bond market or TIPS), total US market and total international market.

3 Fund Lazy Portfolios

Bill Schultheis' Coffeehouse Portfolios

% Allocation

Fund

Fund Symbol

ETF Fund

33%

Vanguard Total Bond Market Index Fund

VBMFX

BND

34%

Vanguard Total Stock Market Index Fund

VTSMX

VTI

33%

Vanguard Total International Stock Index Fund

VGTSX

VEU

Scott Burns "Margaritaville" Portfolio

% Allocation

Fund

Fund Symbol

ETF Fund

33%

Vanguard Inflation-Protected Securities Fund

VIPSX

-

34%

Vanguard Total Stock Market Index Fund

VTSMX

VTI

33%

Vanguard Total International Stock Index Fund

VGTSX

VEU

Andrew Tobias' 3 Fund Portfolio

% Allocation

Fund

Fund Symbol

ETF Fund

33%

Vanguard Inflation-Protected Securities Fund

VIPSX

-

34%

Vanguard Total Stock Market Index Fund

VTSMX

VTI

33%

Vanguard Total International Stock Index Fund

VGTSX

VEU

Core Four Portfolios

As proposed by Rick Ferri on the Bogleheads forum, the Core Four are four funds which form the "cornerstone" of a portfolio. Using Vanguard funds these four low-cost, total market funds would be:

Fund

Ticker

ER

ETF

ER

Vanguard Total Bond Market Index Fund

VBMFX

0.19%

BND

0.11%

Vanguard Total Stock Market Index Fund

VTSMX

0.15%

VTI

0.07%

Vanguard FTSE All-World ex-US Index Fund

VFWIX

0.40%

VEU

0.25%

Vanguard REIT Index Fund

VGSIX

0.20%

VNQ

0.10%

Rick proposes that investors first determine their bond allocation. With the remaining funds, allocate 60% to US stock, 30% to international and 10% to REIT. For example, for 60/40 and 80/20 portfolios, you would end up with the following:

Fund

Vanguard Total Bond Market Index Fund

Vanguard Total Stock Market Index Fund

Vanguard FTSE All-World ex-US Index Fund

Vanguard REIT Index Fund

60/40

40%

36%

18%

6%

80/20

20%

48%

24%

8%

Rick stresses that the exact numbers aren't important. For the 60/40 portfolio, you could increase Vanguard REIT Index Fund to 10%, drop Vanguard Total Stock Market Index Fund to 35% and the Vanguard FTSE All-World ex-US Index Fund to 15% if you like round numbers.

The Core Four is just a low cost foundation for your portfolio. You could add a slice of value stocks (US and/or International). You could split the bond portion between Treasury Inflation Protected Securities and nominal bonds, which would result in a slightly more conservative version of David Swensen's model portfolio (less international stock and less REIT, but otherwise the same four base funds plus TIPS.

More Lazy Portfolios

Beyond the simple 3- and 4-Fund Lazy Portfolios are more complex portfolios. These are still "lazy" in that they contain enough bonds (typically 30-40%) to allow the investor to maintain the same AA for much of the accumulation phase of their lives. The more complex funds add REITs, and "slice and dice" the US and/or International stocks, adding large and small value to the mix.

Bill Schultheis's "Coffeehouse" Portfolio

This simple 7-fund portfolio was made popular by Bill Shultheis' book The Coffeehouse Investor. He advocates 40% in an intermediate term bond fund and 10% each in various stock funds. More information can be found at The Coffeehouse Investor. The Coffeehouse Portfolio contains only 10% international stocks (17% of total equities). It slices up the domestic portion, but uses a total international fund.

Asset Class

% Allocation

Large Blend

10%

Large Value

10%

Small Blend

10%

Small Value

10%

Total International

10%

REIT

10%

Intermediate Term Bond Index

40%

William Bernstein's "Coward's" Portfolio

William Bernstein is the author of several books including The Intelligent Asset Allocator and The Four Pillars of Investing. He introduced the Coward's Portfolio in 1996. The "coward" refers not to the investor's risk tolerance but to the strategy of hedging one's bets and having slices of a number of asset classes. This portfolio is similar to the Coffeehouse Portfolio except that short term bonds are used, and the international portion is divided into equal slices of Europe, Pacific and EM.

Asset Class

% Allocation

Total Stock Mkt

15%

Large Value

10%

Small Blend

5%

Small Value

10%

Europe

5%

Pacific

5%

Emerging Markets

5%

REIT

5%

Short Term Bond

40%

Frank Armstrong's "Ideal Index" Portfolio

Frank Armstrong, author of The Informed Investor, proposed this portfolio for an MSN Money article. It contains a smaller allocation to bonds, and a much larger allocation to international stocks (in fact the equities, excluding REIT, are split 50/50 between domestic and international). Like Bernstein he advocates short term bonds. If the domestic slices were replaced by a total market fund, this portfolio would be very close to the 3-Fund portfolios, with a slice of REIT added.